Tax setup favours childless couples

Has the tax system clobbered the traditional family? The message last week from Patricia Morgan, a sociologist writing for the right-wing think-tank the Centre for Policy Studies, was that indeed it has, in spades.

By the traditional family, Mrs Morgan means one where the father goes to work and mother stays at home to look after children. A working lone parent, she says, will get more in take-home pay and benefits than a married man on the same wage. Pensioners and single people have also done well. The shift towards independent taxation for men and women has meant that "as far as the taxman is concerned, there is now no difference between parenting and golf".

Is she right? Up to a point, is the answer. This is a game played with batteries of statistics, and the problem is to interpret them.

Independent taxation has, undeniably, benefited families where both partners are working, whether or not they have children, over those in which only one works. Two earners bringing in pounds 15,000 each will pay significantly less tax than a single earner bringing in pounds 30,000. And the disparity becomes greater when the single earner enters the top rate, 40 per cent, tax band.

In addition, during the 1990s, first the freezing and then the restriction to 15 per cent of the married couple's allowance has disadvantaged families over single people. If it had gone up with inflation, the allowance would today have been worth pounds 505 a year for basic rate taxpayers and pounds 810 for those paying at 40 per cent; in fact, it is now only pounds 258.

So, if we look at income tax alone, married couples have lost out, and those where only one partner is working have lost most. But income tax is only one tax among many. Add in the others - VAT, excise duties, local taxes and others, many of which have seen dramatic changes in the past decade - and the picture becomes more complicated.

Calculations by the Institute of Fiscal Studies for the "tax cutting decade" since 1985, show that the people who have done best are single people without children. Of those, 76 per cent are better off, 16 per cent worse off. Couples have also done well - but only if they are childless and both work: 65 per cent are better off, and 28 per cent worse off. Among those who have children, but still both work, the gainers and losers are roughly equal.

The one group that has quite clearly lost is Patricia Morgan's traditional family, where there are children and just one partner earns. Of these, 28 per cent gained while 62 per cent lost. Against this, however, two- earner couples with children do have higher costs - travel and work expenses and, possibly, child-care.

Mrs Morgan thinks the tax and benefit system should encourage traditional families, which are now in a minority: out of seven million families with children, only 1.8m are single-earner couples. "Should the decision to be a responsible parent," asks Mrs Morgan, "be treated as just another consumer choice?"

That begs questions about what is "responsible" parenting. And it raises counter questions about whether childless taxpayers and two-earner couples should subsidise mothers who choose not to work.

If the real concern is about children rather than parents, the answer could lie in child benefit rather than in the tax system. Designing tax changes to benefit families with children almost inevitably involves regressive changes - higher earners paying higher-rate taxes would tend to benefit most. That was why the old tax allowance for children was abolished in favour of flat-rate child benefits. The latterrecognise that the costs of children are the same for everybody and, if they are large enough, can help make more neutral a spouse's decision on whether to work and use the money for child care, or stay at home.

But child benefit, frozen for a time in the 1980s, has been eroded. To be worth what its predecessors were in 1950 - tax allowance and family allowance combined - child benefit would need to be around pounds 20 a week, roughly double its present rate.

Despite its history of being part of a tax allowance, child benefit now counts as public spending. And when public spending is almost universally seen as bad, and tax cuts as good, who is going to advocate increasing it?